Lowe’s cuts outlook for rest of 2012 as it struggles with falling sales, mistimed discounts

The nation’s second-largest improvement retailer cut its full-year-earnings and revenue forecasts Monday after posting a 10 percent drop in second-quarter net income. Revenue at stores opened at least a year, a key yardstick for measuring the health of the retailer, declined 0.4 percent.

Lowe’s results were hurt in part by a timing shift in how the retailer reported the quarter and a charge tied to job cuts. But the latest performance also shows the company’s efforts to revamp its merchandise and prices aren’t working, while its rival Home Depot is getting a boost from the improving but still weak housing market.

In particular, Lowe’s return last summer to offering permanent low prices in many items across the store, instead of offering fleeting discounts, hasn’t yet resonated with shoppers who have been accustomed to seeing big sales signs. In fact, Lowe’s said Monday that it will take until the middle of next year to reap the benefits of the strategy, instead of by the end of 2012. The company said it is taking apart its pricing plan to have a better balance between temporary promotions and permanent discounts based on what it’s learned from shoppers.

“The team is making progress on these initiatives, but frankly, the benefits are accruing at a slower rate than I had expected,” Lowe’s chairman, president and CEO Bob Niblock told investors after the earnings release.

Lowe’s performance is in contrast to last week’s upbeat report from Home Depot. The nation’s largest home-improvement retailer boosted its full-year outlook, citing its performance so far this year. And it said that strong cost controls and healthy sales of paint, bathroom accessories and kitchen installations helped lift its net income by 12 percent during the period. Revenue at stores opened at least a year rose 2.1 percent.

Lowe’s earned $747 million, or 64 cents per share, for the period ended Aug. 3. That’s down from $830 million, or 64 cents per share, a year ago. Fiscal 2012 has one less week than last year. The timing shift lowered earnings by about 3 cents per share. Removing a charge tied to previously announced job cuts and the impact of the timing shift, earnings were 68 cents per share.

Revenue fell 2 percent to $14.25 billion from $14.54 billion. Lowe’s said that the timing shift accounted for 1.8 percentage points of the decline.

For fiscal 2012, Lowe’s now expects earnings of about $1.64 per share and revenue to be about flat with 2011’s $50.21 billion. It previously predicted earnings of $1.73 to $1.83 per share, with revenue rising 1 percent to 2 percent.